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New York attorney general is investigating MoviePass parent company

The New York attorney general is investigating the parent company of MoviePass, a source familiar with the probe confirmed to CNN Business.

The state is looking into whether Helios and Matheson (HMNY
) misled investors about its finances, the source said. The investigation is being conducted under New York's Martin Act, an anti-fraud and investor protection law. The existence of the probe was first reported Wednesday by CNBC
.

The movie subscription service exploded in popularity last year when it began offering customers the ability to watch as many movies in theaters as they wanted for $10 per month. But that business model proved unsustainable, and the company has since changed its subscription plans and pricing as well as the number of movies it makes available to its customers.

As the company's troubles worsened this year, its stock price also cratered.

Helios and Matheson stock was trading at an all-time high of nearly $39 a share in October 2017. Now the stock is trading at 2 cents — and that's after the company approved a reverse split to boost the price 250-fold earlier this summer.

Nasdaq has even warned Helios and Matheson that it could delist the stock.

Helios and Matheson and MoviePass did not respond to requests for comment Wednesday.

The company is wrestling with other problems as well.

Board member Carl Schramm, an economist and Syracuse University professor, recently quit his job
and claimed that executives mismanaged the business and withheld crucial information from the board.

Purported stockholders have filed two federal class-action complaints
against Helios and Matheson in August, claiming the company made "materially false or misleading" statements to the market. The company said at the time that it intended to "vigorously defend" itself and believed the complaints were "without merit."

Last month, the company filed new paperwork with the Securities and Exchange Commission indicating that it was going to ask shareholders to vote on another reverse split — one that this time could increase the stock by as much as 500-fold.

That meeting was scheduled to happen Thursday. In documents filed with the government on Tuesday, the company said the meeting would be moved to November 1 so stockholders had more time to consider the split before voting.